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A Brief History of Estate Tax

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

 

In 1797, Congress established a system of federal stamps that were required on all wills offered for probate when property was transferred from one generation to the next. The revenue from these stamps was used to create the navy for an undeclared war with France, which had begun in 1794. When the crisis ended in 1802, the tax was abolished.

 

Estate taxes returned in the buildup to the Civil War. The Revenue Act of 1862 included an inheritance tax, which applied to transfers of personal assets. In 1864, Congress changed the Revenue Act, added a tax on transfers of real estate, and raised the rates for inheritance taxes. As before, once the war ended the Act was repealed.


Center on Budget and Policy Priorities, 2015

In 1898, a federal legacy tax was intended to raise revenue for the Spanish-American War. This served as a forerunner to contemporary estate taxes. It established tax rates that were graduated by the size of the estate. The end of the war came in 1902, and the legacy tax was repealed later that same year.

 

Until 1916, The 16th Amendment to the Constitution was ratified in 1913 — the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, and in one way or another, it’s been part of U.S. history since then.

 

In 2010, the estate tax expired — briefly. But in December 2010, Congress passed the Tax Relief Act of 2010 and the new law retroactively imposed tax legislation on all estates settled in 2010.

 

In 2012, the American Tax Relief Act made the estate tax a perpetual part of the tax code.

 

As part of the 2017 Tax Cuts and Jobs Act, estate tax rules were again modified. The estate tax exemption was increased to $11.2 million, a doubling of the $5.6 million that previously existed. Married couples may be able to transfer as much as $22.4 million to their heirs. The 2017 Act is set to expire in 2025, so it’s reasonable the estate tax law may be modified at least once during the next few years. If you’re uncertain about your estate strategy, it may be a good time to review the approach you currently have in place.